Warehouse Management System and Business Performance: Case Study of a Regional Distribution Centre

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1 Warehouse Management System and Business Performance: Case Study of a Regional Distribution Centre Au Yong Hui Nee ESH Department Hoya Electronics Malaysia, Kulim, Kedah Tel: , Fax: ayhn@yahoo.com ABSTRACT This paper examines Warehouse Management System (WMS) practices and their effects on operations. This study analyses the relationship between adoption of WMS to its impacts on business performance and competitive advantage of a regional distribution centre. In terms of business performance, the focus is placed on various competitive cores of distribution centre. WMS was found has a positive impact on companies' performance on operations management measures. To adopt the MIS, wireless barcode embedded WMS in specific, it is necessary to have corporate culture that supports complex operational activities. WMS implementation is crucial in bringing cost reduction in operational level, effective management in management level, as well as improvement of the company's competitiveness in strategic level. Companies that manage warehousing of their products are expected to implement WMS in order to maintain their competitive edge in the global market place. Keywords Management Information System (MIS), Warehouse Management System (WMS), Logistics Information System, Barcode, Regional Distribution Centre 1.0 INTRODUCTION Availability of information technology will enable accessibility of more efficient communication and control, which is essential to a competitive global logistics capability. The impetus for strategic use of Management Information System (MIS) has been highlighted as the world transits into a global village. There is growing research interest in the use of MIS as a strategic weapon by organisations. Globalisation and competitive pressures have heightened the impetus for strategic use of MIS. More specifically, Warehouse Management System (WMS) designed to introduce improvement into every aspect of a company s warehouse operations offers an organized approach to manage efficiency. Bar code data collection solutions for warehouse management system provides powerful and flexible automatic identification system that connects the shop floor to the enterprise software. By integrating advanced radio frequency and bar coding technologies with core warehousing functionality, WMS provides comprehensive fulfilment centre and warehouse management, including receiving, stocking, picking and related warehouse tasks. The best-of-breed solution leverages state-of-the-art technology to deliver all of the functionality needed to maximise operational efficiency and increase throughput, thus meet the primary focus of warehouse in accuracy and timely fulfilment of customer orders. 2.0 LITERATURE REVIEW Literature review reveals that organisations must be capable of fast, radical changes and those that aspire to be best must lead in changes. According to Oxley (1990) efficient management information system means (a) Quickly and fast response to change, (b) Accurately, (c) Minimum clerical effort, (d) Up-to-date, and (e) Available where and when needed. Orlikowski and Robey (1991) study systems development and the organisational consequences of using IT based on Gidden s theory of structuration. Powell and Dent-Micallef (1997) investigate linkages between IT and firm performance. Benefits realised from information technology communication are information availability, labour pricing and material tracking (Peters, 1994). Boyson, et al (1999, p. 14) reported benefits from a more open information flow as (a) Improve planning, (b) Develop active operations, (c) Smooth product flows, (d) Time cost, and (e) Improve service. Yaoa and Carlsonb (1999) concluded that better inventory control reflected in increased inventory accuracy and timeliness of real-time data permits the distribution activities to be performed with confidence and improved profitability. Barut, Faisst and Kanet (2002) measure the magnitude and the effectiveness of logistics information to firms in both directions of the supply chain. Ahmad and Schroeder (2001) analyses on the benefits gained from electronic data interchange (EDI) usage. Helo and Szekely (2005) review software applications for their functionalities and resulted benefits in relation to supply chain

2 management (SCM). Murphy and Simon (2002) incorporate intangibles e.g. improved customer service into traditional cost benefit analysis in an ERP project. Kuo and Smits (2003) identify factors that improve the performance of integrated supply chains performance, while Evans, Towill and Naim (1995) concluded that SCM could be enhanced through Business Process Re-engineering (BPR) characteristic of not afraid to be radical with respect to internal integration and continually search for step change improvement ideas. Attaran (2004) examines relationships between information technology (IT) and BPR, arguing that those aspiring to do BPR must begin to apply the capabilities of IT to reap benefits for successes. 3.0 METHODOLOGY Single-case study approach is applied in this study to understand the system being examined in the period of time available. The primary aim of this paper is to analyse indepth to provide description and interpretation of business performance improvement in multi-perspectives that is induced by implementation of warehouse management system. Evidence of data is collected from multiple sources including documentation, archival records and direct observation. 4.0 CASE DESCRIPTION The distribution centre of study s holding company, Sharp Corporation, has been involving in TV manufacturing for more than fifty years and pioneer in LCD technology for over thirty years. The key products of the company are LCD TV and solar cells. The primary business operation of the company in this study, a business unit level distribution centre, is procurement and distribution of service parts for both business and consumer electrical appliances. The distribution centre has been in business in operation of distributing electronics parts worldwide since This business focuses on product quality and customer satisfaction. The business unit is among its counterparts. Value-added services of the distribution centre is to provide pick and pack, and individual packaging. Quality management improvement programme is implemented to aim for zero defect through 5S, QCC activities and ISO9001: 2000 Quality Management System. ABC Management is applied in Inventory Management. The distribution of electronics service parts revolves around a certain number of physical (materials) and informational (communication) flows that enable actor to source: The right parts: service parts having increasingly become an integral part of electrical modules In the right place: physical service parts of from manufacturers to dealers usually transit via distribution centre At the right time: a distinction is generally made between urgent deliveries and replenishment operations Logistics Management System, more fondly known as Warehouse Management System (WMS) is a MIS investment in a warehouse. SAP is the abbreviation of System for Application and Products. The distribution centre s Warehouse Management System (WMS) developed by a local software house. For information flow, customers place sales orders via the linked SAP system which in turn are passed on as outbound delivery actions. This delivery information is then processed by WMS and made available on each user s RF scanner. Orders are picked, boxed and printed despatch labels and routes for shipping. Completed delivery confirmation documents are then transmitted to the SAP server and from SAP to notify the customers. The distribution centre has replaced its older, host-based IT structure with a client / server architecture with implementation of SAP R/3 System, and development of new stand-alone warehouse management system in a consolidated warehouse. Transactions can either be executed at local PC or via a portable RF terminal, thus making critical information immediately available. The workers need wireless terminals with real-time radio communication to the Warehouse Management System. It requires radio frequency (RF) network and a communications server on the network. Operations functions can be performed from either a windows-based workstation, hand-held RF mobile computers or any combination of the two simultaneously. 4.1 Configurations SAP and WMS are linked by lease line from the distribution centre office in Shah Alam and warehouse in Port Klang. The server that interfaces with WMS server is the Application Server known as of SAP R/3 system furnished with modules Sales and Distribution (SD) and Financial Management (FI). The WMS server hardware is HP server with Server / Client OS Windows NT server. The WMS is VB program with an MS SQL Database 2000 on a Windows NT operation system platforms using client/server network architecture that provides a standard suite of products. The Minimum hardware requirement is PC with LAN card (NIC 10/100 mbps). They are over 70 endusers are linked to the WMS application. The mobile device is connected to the network using radio frequency (RF) standard of b (11 mbs) and will communicate using TCP/IP. The protocol used is TCP/IP. Through the adoption of these standards, the application has been made device independent, permitting the organisation use a wide variety of mobile devices. The Bar code printer manufacture is Sato, and the data input devices

3 manufacturers are Denso (Batch Handy Terminal, BHT) and Fujitsu (Radio Frequency, RF terminals). 4.2 Host Interfaces Interface Features: Interfaces easily with host-based systems Real time and /or batch host integration Inventory interfaces Order interfaces Delivery data will update stock and the order data files. Receiving order receipts will update stock, and the order data files. The dispatch records will be used to update picking lists with the confirmed quantities. If there is a discrepancy in the stock, the amend dispatch quantities option can be used to reduce the picking list quantity. Hence, these interface data enable the distribution centre to manage effectively the coordination of information including demand, capacity, inventory and scheduling, 4.3 Inbound logistics The inbound processes use Batch Handy Terminal (BHT). Inbound System Features are: Receipts immediately visible and tracked from arrival Receipts referenced by PO Directed Put Away Location verification to ensure correct placement Pre-receiving via manual entry or electronic data interchange (EDI) On-line validation against PO information Receiving Discrepancies Report Cycle counting for partial inventory checking Verification of physical counts and storage accuracy Cycle count post or reissue Adjusts warehouse and SAP inventories When checking in items, WMS notifies warehouse staff if a received good is needed to fulfil a customer backorder. In this event, instead of moving the item to storage location, it is prepared for shipping directly to the awaiting customer. Receipt from supplier occurs when the goods deliver to the warehouse, and the bar codes should be attached to the items that will then be scanned into the warehouse. The incoming instruction number and the quantity will be entered into the scanner, and the bar code will be scanned. Inbound part is matched against expected receipts according to receiving tolerances (date, quantity, and ship-to-location). WMS enables real-time tracking of receiving, storage and immediate access to information on combined statistics of weight and lines for a specified customer. 4.4 Outbound Logistics The outbound processes use Radio Frequency (RF) terminal. Outbound System Features are: Orders accepted from any host systems System directed pick and real-time verification Packing Lists Track and process customer orders Supports prioritising orders Weight capture at picking Pick to Pack Picks confirmed through shipping process Interfaces to SAP to confirm the shipment orders Customer orders are automatically allocated, and delivery order is also automated by linking the picking ticket to terminals. The standard printed picking list will be used by the warehouse for the dispatching of stock. The number will be entered into the scanner where bar code for each item on the picking list will be scanned. A quantity will be entered via further bar codes scanned. 4.5 Inventory Management Inventory Management Features are (a) real-time storage usage, and (b) security through user passwords and access authority levels. Stock take will be performed for the entire warehouse. The scanner will allow entry of a location reference via the scanner. Bar codes would then be scanned and either a quantity entered or further bar codes scanned. 4.6 Management Reporting The Reporting Features are: View storage utilisation in real-time Ad hoc query function Export to text, Excel and CSV text files Detailed Item (SKU) Report Detailed Locations Report Receiving order status Shipping order status Distribution systems in globalised competitive environment cannot tolerate delays in data capture and reporting of inventory detail such as their locations and movement. A network-based decision support system (DSS) via Business Objects (BO) was

4 developed to provide a systematic and consistent way to analyse logistics management. Therefore, availability of these management reports and analysis enables quick and better decision-making and prioritisation. 5.0 CASE ANALYSES AND DISCUSSION Radio Frequency WMS that utilises bar code technology have many advantages. The following is a list of the most common benefits that directly result from implementing a WMS. Leveraging RF-based bar coding technologies and seamless integrating with order entry, WMS tightly orchestrates these activities. WMS provided better workload control for view of completed and upcoming activities. While checking in received good, it is prepared for shipping directly to the awaiting customer if the item is needed to fulfil a customer backorder, while eliminating the introduction of transcription errors. It reduces labour costs and increases productivity. In average incoming cycle has been reduced from average 3.71 days to 1.02 days. It was observed that the lead-time has been reduced by 73% in the period. The final phase of receipt and put-away processing is the automated update of purchase orders and inventory information into SAP that eliminates manual intervention and errors, while providing accurate and up-to-date inventory control. It reduces safety stock, stock shrinkage and spoilage. Administrative is improved because the work of printing and distributing picking lists or labels is contained, as is the task of keying in picking confirmations and picking amendments. WMS offers a streamlined shipping solution that produces shipping labels, picking slips, carton content labels and advanced shipping notices eliminating errors in transcription from customer order. The Outbound lead-time for air freight (AF) for subsidiaries has been reduced from 9.94 days to 4.29 days, which is a reduction of 57%. The WMS provides a fast order handling process to keep distribution costs to a minimum. WMS reducing human errors inherent in manual and paper based systems. Inventory Accuracy improved from 98.34% to 99.52%. This occurs by allow access all departments within company to the same set of accurate inventory data. The WMS offered physical scanning of items, locations and boxes so that the contents of any order or storage location can be viewed in real-time. Floor workers connect to the WMS data using wireless RF terminals, which customer services users and business analysts access through a GUI interface to check delivery status. Transparent and accurate inventory data allows employees in distribution, procurement and warehouse departments to work from the same information, thereby ensuring greater customer satisfaction, a more efficient order handling process, and keeping warehouse management costs to a minimum. WMS allows capturing important information on the items such as weight, expiration date and more. Other benefits obtained are that real time radio communication enables real time stock updating. This in turn prevents re-picks or waiting time due to empty picking faces. Cycle counting can built in to the replenishment task, improving the efficiency of the stock checking process. The improved accuracy of stock recording leads to improved service level and less time spent investigation stock discrepancies. The provision of information at the website is a good channel for the distribution centre (DC) to fulfil the needs of their customers and hence improve customer relationship. Real-time information eliminates waste and redundancy. Fill Ratio has been improved from 82.3% to 86.3%. It increased customer satisfaction resulting from fewer fulfilment errors. EDI requirements support through WMS automatically providing detailed shipping information. It allows for real-time communication and complete visibility for supply chain collaboration It was reported that 43% of the customer complaints was due to warehouse operation mistakes before. Nevertheless, the operation accuracy has been improved to just 11% of complaints after implementation. Efficient planning and utilisation of space delivers improved warehouse inventory visibility. Making optimal use of warehouse space is essential to having an efficient and effective warehouse management system. To effectively manage the warehouse space, WMS provides the ability to individually determine for each bin whether it is fixed or floating. Improved space utilisation was achieved by logical stocking in different sized products. WMS also provides detailed audit trail that measures performance levels objectively, ensures employee accountability and allows material flow to be easily traced. It was found that the operations procedures at the warehouse have been overhauled to adapt to new warehouse management system. Business Process Reengineering (BPR) has taken place. Maintenance department was established for independent cycle counting process. The WMS promotes knowledge sharing. It is clear the usage of the logistics system have been embraced at all stages of operations. The system has fundamentally improved the warehouse s services, internal and external relationships reflected in the performance measures to help the warehouse gain a competitive advantage. They are able to alter the way in which the firm conducts its business or the very business of the firm itself. These flexibility and

5 enterprise-wide approach has brought real agility to the business, supporting strong business growth. The bottom line of a WMS is the ROI it provides. By improving on warehouse procedures, WMS makes the distribution centre more competitive and profitable. There are constraints faced by the distribution centre. For the demand forecasting, poor demand forecasting processes can result in excess inventory, stock-out and back orders, and unable to forecast early-lifecycle and end-lifecycle parts accurately. In term of inventory management, the distribution centre experienced limited collaboration into demand lead to poor inventory deployment, as the result of lack of integration into sales data. At the lower stream flow of operation in distribution and logistics, there is challenge of inefficient distribution flow, logistics and warehouse management processes that can result in long lead-time from suppliers to customers and expensive total cost of distribution. There is also bottleneck created by sub-optimal processes and lack of end-to-end integration within. In order to encourage the staff to further embrace to new warehouse management system, long-term on-going training is essential, the system must be designed with regular programme enhancement to create awareness of the gains of using technologies. 6.0 CONCLUSIONS To maintain competitiveness, customer requirements are met consistently, which are achieved by, among others, enabling of more flexible processes with deployment of radio-frequency technology, improved scope of delivery with provision of same day delivery services, shorter delivery lead time especially airfreight mode, increased customer satisfaction with less complaints, inventory visibility with higher inventory accuracy and cost efficiencies with higher labour productivity while minimising inventory investment which includes inventory handling. Procedures have been established to monitor and measure WMS activities. It is concluded that WMS has a positive impact on operations measures. Investments in WMS enable the distribution centre to compete successfully against other rivals in the market. To adopt the MIS, wireless barcode embedded WMS in specific, it is necessary to have corporate culture that supports complex operational activities. BPR has to be enacted as such that the WMS and associated physical operations are well integrated. WMS implementation was crucial in bringing about reduction of cost in operational level, and effective management in management level, as well as improvement of the company's competitiveness in strategic level. Companies that manage warehousing of their products are expected to implement WMS in order to maintain their competitive edge in the global market place. The case study is limited to a selected electronics parts regional distribution centre. The flows analysed are the physical (stock management and movements) and informational flows that are associated with the service parts distribution activities. Future studies may explore on variety of industries to capture distinction in experience, by focusing on consumer market based electrical appliances or perishable fast movement consumer goods (FMCG). Comparative studies can be conducted across industries, and then the similarities and differences observed. Alternately, measurement of intangible benefit can also be tested in Malaysian industries. REFERENCES Ahmad, S. and Schroeder, R. G. (2001), The Impact of Electronic Data Interchange on Delivery Performance, Production and Operations Management, Vol. (10) 1: Attaran, M. (2004). Exploring the relationship between information technology and business process reengineering, Information and Management. 41: Barut, M., Faisst, W. and Kanet, J. J. (2002), Measuring supply chain coupling: an information system perspective, European Journal of Purchasing and Supply Management, Vol. 8 (3): Boyson, S. et.al. (1999). Logistics and the Extended Enterprise: Benchmarks and Best Practices for the Manufacturing Professional, New York: John Wiley and Sons. Evans, G. N., Towill, D. R. and Naim, M. M. (1995). Business Process Re-engineering the Supply Chain, Production Planning and Control, Vol. 6 (3): Helo P. and Szekely, B. (2005), Logistics information systems: An analysis of software solutions for supply chain co-ordination, Industrial Management and Data Systems, Vol. 105 (1): Kuo, D.C.L. and Smits, M. (2003). Performance of Integrated Supply Chains: An International Case Study in High Tech Manufacturing, Proceedings of the 36th Hawaii International Conference on System Sciences. Murphy, K. E. and Simon, S. J. (2002), Intangible benefits valuation in ERP projects, Information Systems Journal, Vol. 12 (4):

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